In Barrow Hill box
Creative Commons License photo credit: Elsie esq.

Australian property prices are so over-valued their return to the long term trend will make the painful bubble burst in the USA look like a child’s picnic.

Government, major banks and property speculators used every tool in reach to keep alive this Ponzi scheme – Hyman Minsky’s term for borrowers reliant on capital gains to repay principal and interest. recently updated their Real Price Index graph – a statistical series that mimics the US Case-Shiller index. The sheer scale of land price inflation fills me with awe. The modest blue line is the US property crash that derailed their economy.

And land prices are in retreat, with every statistical survey showing price falls nation-wide. Further, there are no economic levers left to pull to prevent land prices reverting to the long term trend.

• We have an army of loss-making middle-income landlords, driven by our stupid tax system, who must sell – or be destroyed – if prices retreat even a little.

• The number of properties on the market across Melbourne and unsold for over 60 days has blown out to 90,600. This giant lump of ‘Stale Stock’ is now beyond digestion. Postcode 3029 (Hoppers Crossing, Tarneit and Truganina) has 2 years 4 months supply; postcode 3030 (Point Cook, Werribee and Derrimut) has 2 years 5 months supply – assuming no new construction and no existing owner sells in that time.

• Nationally in September, only 16.4% of housing finance went to first home buyers, up from 15.4% in August, the lowest proportion since the ABS Housing Finance statistical series began. FHB’s have turned away or been excluded from home ownership to travel, study, saving or investment.

• There will be no relief on interest rates. The current level of rates “is about where we want them to be,” RBA Assistant Governor Guy Debelle said Monday. “If they weren’t, we would do something about it.”

• A First Home Owners Scheme from the federal government would fail and bring a torrent of abuse upon them. FHB’s now know these schemes merely inflate land prices – good for vendors but not for buyers. The minority Gillard government has nil capacity for other creative financial reforms that might offset the fall in prices.

House prices decoupled from the fundamental economic anchor – what a house could rent for – in the mid 1980’s. That is the true support level, and there is only air between here and there.

Don’t Buy Now!